Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net income would increase by:

A) $45,000.
B) $7,500.
C) $28,500.
D) $37,500.

Question

Manisha Sidhu · Accepted Answer

Final Answer : C, Explanation :  If the selling price is increased by 15%, the new selling price would be $15 * 1.15 = $17.25. The unit sales would decrease by 10%, so the new unit sales would be 100% - 10% = 90%. The new total sales would be $17.25 * 90% * 10,000 units = $155,250. The new variable expenses would be $180,000 * 90% = $162,000. The new fixed expenses would remain the same at $90,000. The new net income would be $155,250 - $162,000 - $90,000 = $3,250. The increase in net income would be $3,250 - $30,000 = $28,500.

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